So you got behind on your utility bills and you are going to file for bankruptcy? The past-due debt to the utility company just gets discharged in your Chapter 7 and there’s nothing more to worry about, right?

Well…not necessarily. You might have to worry a bit more about your utilities, especially if you are still receiving service from the same company to whom you owe that past debt.

Utility service in bankruptcy is governed by section 366 of the Bankruptcy Code. Normally, efforts to collect a past-due debt after a bankruptcy filing are stalled by the automatic stay. But when that creditor is a utility, they have the right under section 366 to an adequate assurance of payment.

This assurance of payment generally takes the form of a deposit, usually two times the amount of an average monthly bill. The deposit would have to be paid within 20 days after the bankruptcy filing. If the deposit is not paid in time, the company may discontinue service to the debtor.

So the upshot is that if you owe a utility that you are currently using more than twice your average monthly bill, it might be worth discharging your past-due debt to that utility and paying the deposit. If you owe less than twice your average monthly bill, you are probably better off paying off the debt to the company before filing (less than $600 is best, due to preference payment issues) and keeping current on your utility bills at all times.

If you owe a lot of past-due debt to the utility and you cannot afford the deposit that they are demanding after your bankruptcy filing, you have the option of filing a motion with the bankruptcy court to ask for a lower deposit amount.

It’s best to discuss these issues with your bankruptcy attorney before filing. Ask your attorney to explain your options regarding all types of past-due debt and to recommend a good course of action based on your individual situation.

Photo by strollers.